A case involving a proposed gift from the assets of a woman with dementia has highlighted the limitations of powers of attorney.
In a June 14 decision, the Supreme Court of British Columbia addressed the question of when an enduring power of attorney can be used to make a gift on behalf of an incapacitated individual to the same person that is managing that person’s financial affairs.
“Powers of attorney are ubiquitous in estate planning. They are both useful and treacherous, because they enable the disposition of property without the consent of its owner,” the court said. “The owner is therefore vulnerable to misuse of the power of attorney. The vulnerability is acute where the owner is no longer legally competent.”
In this case, the court addressed the question of whether to allow a man who is managing his mother’s financial affairs under an enduring power of attorney to make a gift to himself, as set out in an investment plan that was crafted years earlier.
According to the decision, Eugene Derreth — who was managing his mother Doreen’s financial affairs under a power of attorney that took effect after his father died in July 2023 — sought the court’s permission to make himself a gift of $250,000 from his mother’s holdings, as the family had previously planned.
In 2010, when both parents were still alive, the couple sold a vacation property and the proceeds from that sale were held in a joint investment account. As part of their plan, when one of the couple died, the proceeds of that sale would go to the surviving spouse, with half of that amount (approximately $250,000) to be immediately gifted to their only child, Derreth.
In his role under the power of attorney, Derreth sought the court’s approval to proceed with that gift.
However, the court denied his application, ruling that the power of attorney didn’t specifically authorize the gift.
“With some regret, I have concluded that the proposed gift is not lawful [under the legislation governing powers of attorney],” the court said in its decision.
While that legislation allows an attorney to make gifts, subject to certain conditions, including that the vulnerable person will have enough assets to meet their needs, an attorney can only receive a gift that is specifically provided for in the terms of the power of attorney, the court found.
The court noted that Derreth’s mother was not at any financial risk if the gift was allowed. She would be left with over $2.8 million in assets, and the interest earned on her assets is funding the monthly cost of her care.
Therefore, one of the key conditions for making a gift was satisfied. However, the key condition for the attorney to be the recipient of the gift was not — as the gift wasn’t specifically authorized in the power of attorney.
“The language of the enduring power of attorney granted by Doreen is entirely general. The power of attorney does not expressly permit Eugene to effect a $250,000 gift to himself from Doreen’s funds. It makes no difference that Doreen intended the gift, prior to her incapacity. Express permission in the power of attorney is required … and it is absent,” the decision noted.
As a result, the court concluded that the proposed gift was not lawful and it rejected the application.